GDP growth represents a hardy showing but 'too soon to sound the all clear'

Canary Wharf, London.
GDP for the UK grew by 0.2% in April. Credit: PA

Not so long ago the expectation was that Britain would be several months into a recession by now. Thus far, we've escaped. 

In April, the UK economy returned to growth.

A month-on-month rise of 0.2% in gross domestic product (GDP) is not the sort of performance to sing about, but, given high inflation, rising interest rates and ongoing strike action, it looks pretty hardy. 

"It's too soon to sound the all clear," opines Capital Economics - and it's fair comment.

The chancellor told broadcasters that the government's 'primary focus' is to 'squeeze inflation out of the system'

Pubs and bars did good business in April, new car sales were resurgent. However, consumer spending may wilt in the months ahead.

The full force of the 12 interest rate rises in the last 18 months has yet to be felt and, if the markets are right, Bank Rate is heading for 5.5% by the end of year.

The government's pledge to halve inflation - criticised as "not wise" by the former governor of the Bank of England, Mervyn King, yesterday - may yet be possible.

Whether it can done without a recession is less clear.

On Wednesday, the Chancellor, Jeremy Hunt, was celebrating the "underlying resilience" of the British economy, proclaiming the government's "mission to squeeze inflation out of the system" and, fairly, pointing out that many other countries face similar challenges.

The economy has proved resilient so far to the drag from interest rates, but borrowing costs continue to edge up and 1.5 million households will refinance their mortgages before the end of the year.

The International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) both think our prospects look brighter than they did, but the next six months will be challenging. 

Capital Economics thinks a recession, albeit a mild one, is still on its way.

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